Dean Baker

It seems to be the lesson that our nation’s leaders are trying to pound home to us. According to the New York Times, members of Congress are secretly running around in closets and back alleys working up a law allowing states to declare bankruptcy.

According to the article, a main goal of state bankruptcy is to allow states to default on their pension obligations. This means that states will be able to tell workers, including those already retired, that they are out of luck. Teachers, highway patrol officers and other government employees, some of whom worked decades for the government, will be told that their contracts no longer mean anything. They will not get the pensions that they were expecting.

I beg to differ. It seems that “lesson” was already taught with the specially done bankruptcies of GM and Chrysler where the bond holders were screwed in favor of unions and government.

But nevertheless, the simple reality of the situation in the states is this – they overpromised something for which they haven’t the revenue to fulfill. What would Baker have them do except restructure that debt so it is both affordable and something they can manage? The fact that a state promised something it hasn’t the means to produce doesn’t make what it promises sacrosanct. Especially if the means for fulfilling it is more debt or much higher taxes for those who aren’t affected by the problem.

This is the general story of public pensions. Public sector workers are often better situated than their private sector counterparts, in that they even have pensions. But study after study shows that these workers paid for their pensions with lower wages than their private sector counterparts. It is tragic that so many private sector workers cannot count on a secure retirement, but it won’t help them to make workers in the public sector equally insecure.

What’s even more tragic is the fact that Baker and the left can’t see that state governments have badly managed those retirement funds just as the federal government has with Social Security. It isn’t just the states who are in trouble – they’re just having to face the reality of their mismanagement first. Facing the reality on a national level is coming in a few years. And it won’t be pretty. In the meantime, this is the reality states must deal with, and unlike the federal government they can’t create money out of thin air with the click of a mouse.

Additionally he notes that many in the private sector “cannot count on a secure retirement”, yet we don’t see him whining about ensuring they’re covered. You know, tough beans and all, folks, but the public sector folks vote Democratic.

So Baker is left with an essentially emotional argument to try to shame the right (who somehow became the bad guys here) into going into even more massive debt at a state level to pay workers what they are “due.” Well, since I had nothing to do with the states making promises they couldn’t keep, I feel no obligation to bail them out when their promises are found to be empty. Baker’s cry that the right believes people should pay debts and that right-wing lawmakers conspired to rewrite bankruptcy laws to make it harder but now want to help facilitate state bankruptcies is facile at best.

As mentioned, state pension plans have been in trouble for years – even in good economic times. Warnings and calls to do something have essentially fallen on deaf ears as politicians preferred to kick the can down the road (just as they have done with Social Security). Now, at least for a number of states, that road has come to a dead end. While it may be emotionally satisfying to argue that the right wants people to pay their debts and charge them with hypocrisy, it should also be understood that the rewriting of bankruptcy laws was intended to take the action from being a first choice for those who used existing law to shirk paying debt when they probably could, to a law that was a available to those who had done all they could to pay their debt and found it impossible because they hadn’t the means to do so.

Whether he likes it or not, that’s where many states are at this point.

Of course Baker doesn’t offer a solution (although I think it is pretty well implied), just a whine. The reason he doesn’t offer a solution is the solution is obvious – even if he doesn’t like it. Restructuring the debt may reduce the pension amounts paid, but it doesn’t necessarily mean they’ll be eliminated altogether. As for what people were promised (and planned their lives around) vs. what they get, they need to look to their state leadership for answers – not taxpayers.